State attorney sues three drug companies

AUSTIN {AP} The Texas attorney general on Thursday sued three drug companies, alleging they committed Medicaid fraud by overcharging the state more than $20 million for respiratory disease medicines.

The civil lawsuit filed in Austin seeks to recover the $20 million plus $59 million in penalties.

"All three defendants Dey Inc., Roxane Laboratories Inc., and Warrick Pharmaceuticals falsely inflated the prices they reported for respiratory medication. They then turned around and sold drugs to pharmacies for drastically reduced prices," Attorney General John Cornyn said.

For instance, he said, Warrick typically sold a box of the asthma medicine albuterol for $13.50 to pharmacies in Texas but reported to the Texas Department of Health that the price was $40.30.

"That represents a 200-percent markup, an overpayment of more than $25 a box," Cornyn said. The alleged price difference is called "the spread."

When a Medicaid patient is given a prescription by a doctor, a pharmacy typically dispenses the medicine then bills Medicaid for reimbursement. The drug manufacturer is supposed to have certified for the state health department the price at which it sells the drug.

That certification is used in calculating pharmacy reimbursement.

The company creating the largest "spread" generates a larger share of business from pharmacies, Cornyn said.

"Inflating the balance to capture the market amounts to stealing from Texas taxpayers," he said.

The scheme is alleged to have dated to 1995 and also involved the respiratory medicine ipratropium bromide.

William O'Donnell, a spokesman for Schering-Plough Corp., parent company of Warrick, said the company followed all applicable pricing policies and has provided information requested by the state.

"We have been cooperating fully with the Attorney General's Office," O'Donnell said.

Kelli Schobelock, a spokeswoman at Roxane Laboratories, said that company is cooperating with the attorney general, but it has not been served with a complaint and therefore would not comment in detail.

"We are surprised and disappointed with the apparent legal action in Texas, as all of our products, including ipratropium bromide, are marketed in full compliance with the law," Schobelock said.

Charles Rice, president and chief executive officer of Dey, said the company denies any wrongdoing. He said the state has known for years that the "average wholesale price" of a drug is "something more akin to a 'sticker price' than the actual price of a drug."

"The allegations are simply false and Dey intends to vigorously defend itself against these charges," Rice said.

Cornyn said his office began investigating after receiving information in January. The Texas Department of Health and Texas Health and Human Services Commission, which administers Medicaid, took part in the probe.

Cornyn didn't rule out that other drug companies or pharmacies would be targeted.

A week ago, Cornyn's office was in the spotlight over Medicaid because of a federal judge's ruling that Texas wasn't doing enough to provide access to Medicaid services for children in the program.

The attorney general denied that Thursday's announcement, which he made in separate news conferences in Dallas, Houston and Austin, had any connection to the Medicaid federal ruling.

But he again said his office will appeal the judge's decision.

"Texas spends more money than any other state in the nation on Medicaid outreach and indeed has more than doubled its Medicaid participation rate since the original lawsuit was filed in 1993," he said.